Chapter 13 bankruptcy involves setting up a repayment plan, with the approval of a bankruptcy court judge, to pay off your debts step by step over a period of years. This has the advantage of protecting your home, car and other assets from creditors. At the same time, you are responsible for making your monthly payments on time until your plan is finished, which will be between three to five years.
After a while, it can be tempting to finish your repayment plan ahead of schedule. And under Chapter 13 bankruptcy law, you can. But should you?
Reasons to end Chapter 13 bankruptcy early
Your Chapter 13 repayment plan is based on your income, resources, and ability to pay when the judge approved it. This is why people often refer to Chapter 13 bankruptcy as the “wage earner’s plan.” But sometimes, a large inheritance, lottery win or other windfall can drastically improve your financial picture. When that happens, it can make sense to pay off your remaining debt under your plan and exit bankruptcy earlier than you or the court originally planned.
Or, if your financial situation has gotten to the point where you cannot make your payments anymore, you may qualify for a Chapter 13 hardship discharge. However, qualifying can be difficult, and you should consult your bankruptcy attorney about your options.
The potential risk involved
Keep in mind that once you leave bankruptcy protection, if you still have outstanding debt, your creditors’ debt collection efforts can legally resume. Debt collectors can start calling you again. They can ask the court to have your wages garnished. Your life might return to what it was right before you filed for bankruptcy in the first place.